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Sheldon Company's balance in prepaid insurance at the beginning and end of the year was $2,500 and $1,000, respectively. This will be reported on the statement of cash flows using the indirect method as:Multiple choice question.O an increase of $1,500 which will be added to net incomeO an increase of $1,500 which will be subtracted from net incomeO a decrease of $1,500 which will be added to net incomeO a decrease of $1,500 which will be subtracted from net incomeAnswer: a decrease of $1,500 which will be added to net income

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Statement of cash flows using the indirect method as a decrease of $1,500 which will be added to net income.

What is net income?

  • Sales are subtracted from cost of products sold, selling, general and administrative expenditures, operating expenses, depreciation, interest, taxes, and other expenses to arrive at net income (NI), also known as net earnings. Investors can use this figure to determine how much a company's revenue exceeds its costs. This figure is a measure of a company's profitability and may be found on the income statement.
  • Businesses determine their earnings per share using net income. Since it appears at the bottom of the income statement, net income is frequently referred to as the bottom line by business analysts. In the UK, analysts refer to NI as profit attributable to shareholders.

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